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Rui Chenggang: Good morning ladies and gentlemen. Welcome to CCTV's debate also
a discussion here at the Summer Davos.
The entire session will be televised on CCTV's business channel and together with
many other domestic and international channels of the entire CCTV group.
The topic of this discussion is the new frontiers of China's growth.
I'm sure immediately following the Premier's keynote speech will have a lot
of subject matters to address I made it very complicated on predicable global
growth prospects backdrop and here on panel we have some very outstanding
speakers and first of all allow me to introduce youג€”them one-by-one.
I will start with the gentleman next to me. Mr. Li Daokui one of the leading
economist here in China who is also a member of the monetary policy committee of
China's central bank. Ambassador Gary Locke who is probably the
most wildly known Ambassador from the United States ever in China currently as
a Chinese-American politician who was formerly Governor of Washington State
and also the new Secretary of Commerce.
Mr. Wang Jianlin of Wanda Group one of the leading real estate developers and senior
business leaders in China and also
probably the most wildly known and the richest person here in the city of Dalian
and finally, and certainly not the least
Mr. Kris Gopalakrishnan CEO of Infosys. I'm sure you know Infosys as well as you
know about Lenovo in China.
So the first topic that we are allowed to address here is was in the news the global
debt situation was happening in Europe is making a lot of people nervous including
those in China and unfortunately the debt problem is not unique to Europe only.
The United States and Japan virtually
most of the developed world has some sort of a debt problem.
Some worse than others what has happened in United States was making us nervous in
China as well including the Chinese stock markets so I would like to begin by asking
Ambassador Locke.
My colleagues told me that you flew coach
economy class from Beijing to Dalian was that a reminder that U.S still owes China money?
Gary Faye Locke: Well actually that is a U.S government policy whether we are here
in China or even throughout the United States.
All U.S government officials always fly coach on our personal travel if we want to
pay the extra money for business class or whatever that is our own personal decision
but we believe in setting a good example in being good stewards of American
taxpayer money so the requirement is
and virtually all cases unless you are traveling ore than 14 hours and have
a meeting immediately or within so many hours after landing you fly economy
and certainly from Beijing to Dalian is only an hour so economy is very, very comfortable.
Rui Chenggang: Your colleague secretary Gartner was on my show twice and he told me
every time when were together that
a strong dollar is in the best interest of the United States.
It served United States best interest,
but now it seems that a weak dollar is in the better interest of the United States isn't
that so? Gary Faye Locke: Well let me just say
that we and the United States are very concerned about the world economy, we are
also concerned about our own fiscal health, but I think what is really
important is that United States Congress and the President took very decisive
action just a few weeks ago in reaching an agreement on racing the debt ceiling.
Not only did it call for as part of that agreement reducing government expenditure
but also calling for reduction of expenditures in the future and that it
will reduce our deficit and our debt over the next 10 years and there is a committee
of members of Congress that are now negotiating and if they do not reach an
agreement they will nonetheless be automatic across the board cuts in
government spending.
So people should have confidence in the ability of the American government to deal
with a financial problems that we have had to get our fiscal health in order, but let
me also say that it is in the self interest of all other economies in the
world that have the United States economy as strong and as vibrant and as healthy as
quickly as possible. Because certainly a strong U.S economy
means that more people have jobs,
have disposable income, making purchases and we know that many of those purchases involve
items from all around the world.
So the more Americans are working and have income the more they will be buying
things not just made in America but made in China, made in Europe, made in India
and that is good for the workers of all those other countries.
Rui Chenggang: I remember vividly when Ambassador Locke was the governor of the
state of Washington.
He was promoting Washington Apples to Chinese consumers.
You literally cut them open in the supermarket in China promoting American
products for China but probably the biggest American export to China is the
U.S dollars it also has Washington on it
and Mr. Li Daokui I will have ask you most economist in China tend to believe that
U.S dollars will be devalued and the are a lot of legitimate concerns about the
purchasing capacity of China's immense huge foreign reserves.
How did it happen?
Li Daokui: Well, I think for scholars and government officials alike in China they
are quite right in being concerned about the debt dynamics and the future trends of
U.S dollars of the United States because it appears to us that in so far as
agreement between the Congress and the why cost is concerned.
It is not as decisive as you have described. It is just to buy more time to
procrastinate the solution to sometime in the future and I think the U.S economy
like the Chinese economy is also binary economy. It has a very competitive effect like
Boeing from the Washington States
and apple not the Apple PC as well as the wood industry, the timber industry of our
Washington State. However, on the other hand they are so
many are Latin American immigrants in the United States who cannot even speak
English and they cannot catch up with the pace of globalization so for the U.S
challenges today I think the far more grimmer than those confronting President
Ronald Reagan and Prime Minister Margaret Thatcher in early 1980's and your
challenge is around fundamental shift of the economy so as for the low
and straighter of a labor force to be able to catch up for world globalization you need
to reduce welfare budgets a lot. Well, it is not time to find the solution
for the United States but please describe the situation in China talking about our
huge foreign exchange reserves and I think it is our option to build so many foreign
exchange reserves. United States has never forced us to buy
the treasury bonds of the Unite States and to our trade, our commodities, our exports
and many things from China is denominated in USD.
If USD is to devalue rapidly china will be under huge impact.
Could you talk about the origin of this dependency and in this era with this
future of U.S economy in the horizon,
should we step up or accelerate the internationalization of the RMB and shall
we guard more against the risks of the U.S economy. I don't think we should blame anyone for
the dependency. It is result of the past two decades of
globalization of the global economy dynamics and in the process of economic
globalization some countries have some sectors weakening while the same sectors
in other countries are becoming more
competitive so that during a certain period of time in some countries there are
higher savings rates, in others there are lower savings rates and money flows from
China to the United States whose interest rates with higher at that time so we
shouldn't blame anyone for it but as Premier Wen Jiabao put it we have so wise
Ambassador from the United States of China we should exercise our wisdom in finding a solution.
We should not only care about our treasury bonds positions but also thinking more
about diversifying our investments so only with the diversification of our
investments away from the treasury bonds to the physical economy of the United
States including the express ways the highways of the United States it would be
better, but it calls for reform in the U.S as well such as your highway, railway
and coastal assistance. If those reforms have taken place there
will be plenty of money from China from under emerging markets from Middle East
over $10 trillion U.S are ready to be invested into the United States so we are
waiting for those reforms. Without those reforms the only we can buy
is your charity bonds. It will hurt both -- [Chinese] if the
Dalian -- host so many U.S dollars
and given the debt problems and the Euro debt crisis in headline how would you manage
your USD denominated assets.
Well I am proceeding from a microscopic point of view.
If you have a many much foreign currency
given the de facto devaluation of both the USD and Euro I will stop buying charity bonds.
I will start buying natural resources or other physical investments and I think for
the jobs in the United States and before Chinese FDI into the United States it
is quite limited and I think the United States is due restricting high tech
exports to China.
Put it simply for a container loads of high tech exports to be exported to China
it will bring a whole container vessel of goods back to the United States and I
think it will be something very good
and China is the largest developing economy while the U.S is the largest developed economy.
We have a very strong complimentarity between our respective economies so we are
not conflicting with each other but most importantly both offers should open up
fields for investments, sectors for investment for the retail and service
and manufacturing and IT sectors in China the leading companies in China are American companies.
But for Chinese investments in the United States we are just opening a few Chinese
restaurants but because the sectors for Chinese investments are not opened up yet
while you 10 of hundreds of billions of U.S Dollars from China are awaiting for
the opening up of those sectors to be invested in.
Gary Faye Locke: It is an area in which I and the embassy and the U.S government
wants to focus on both of the points raised by our two speakers with respect to
Mr. Wang.
We have had a good conversation last night at dinner.
There is a lot of misperception about the investment opportunities in the United
States. There are almost no fields, almost no
sectors except for very, very few that are restricted in terms of foreign direct
investments so we have companies from Russia, from Germany, from Korea,
from Japan from Brazil from India that actually own substantial holdings and have
substantial holdings in the United States. Whereas in China of course many of the
national champions in the various industries whether it is in steel or
whether it is in a natural resources are prohibited from any type of foreign
investment and if there is foreign investment whether from Europe or the
United States it is limited to no more
than 49%, but on infrastructure we very much welcome foreign direct investment
and we are looking at public private partnership the federal government is not
in the business with paying for all of these infrastructure projects at the state
and the local level those local governments are looking for a private
sector investment and so for instance in California and Las Vegas there is a big
interest in public-private partnership on high speed rail and many of those entities
are actively encouraging participation from China so we welcome that foreign
direct investment.
So what we at the embassy under my 10 years as Ambassador working with the
commerce department and others back in the United States we will be holding a lot of
seminars and reaching out to some of the prominent Chinese companies informing them
of the incredible and very large investment opportunities in the United
States and so that is our job we have got to break down some of they myths and some
of the misperceptions because we do welcome a foreign direct investment that
will help make the Chinese companies more prosperous while creating jobs in the
United States if those training companies establish operations,
facilities, manufacturing clients in United States the same way that the Korean and Japanese
and even German automobiles of companies have created operations in United States the
same way that German companies have created steel mills and steel processing
facilities in the United States.
Rui Chenggang: Thank you Ambassador Locke.
Kris, I'm sure India is watching what is happening in Europe with which concerns as well.
What are some of the actions the Indian government and business community are
considering taking to have the risks?
Kris Gopalakrishnan: So clearly in an interconnected economy that we are today
and all of us will slow down as the global economy slows down and that is the reason
why we have to look at coordinated acts and what happened in 2008 across
governments, across countries I think is an important example or a lesson for all
of us to say that in today's world we have to be coordinated acts.
Indeed economy is also slowing down and all and we were expecting a growth rate of
about 8 to 9% now we are looking at probably close at the 7% and for
a developing economy like India this 2% is reduction has a significant impact because
you know what we expected happened maybe in 5 years to 10 years now we will take 15
to 20 years because of the slow down. So it has an impact on India.
There is awareness now there is an urgency from the government to look at restarting
the reforms, look at working with other government.
The business side also there is clearly an awareness that we need to make
investments in other parts of the world so as in -- for example we are making
investments in China. We are making investments in Europe; we
are making investments in U.S so we are actually spreading out wings to different markets.
I also want to add one more thing as we look at you know the development going
forward when you look at about 4 billion people who are still in developing
economies whereas 2 billion people are in the developed economies what is the right
model for a us to develop you know considering both the economy as well as
environment and what should we be doing? And this is where I think experiments
and innovations with China with India and of course the largest economy today in the
world which is the U.S, which is $14 trillion economy.
I think we will have work through that again for not just the economy but in the
area of climate change environment etcetera. We have to go together to figure out what
is the right model for development for the remaining 4 billion people who are still developing.
Rui Chenggang: There has been a lot of talks in China lately that among the
policy makers and economist like you that China needs toג€” "couldn't"
save the U.S economy, China needs to save the European economy, China needs to buy
more of the debt from certain troubled European countries as if by saving these
countries these economies we are saving China itself.
Is there some truth in that as well? Li Daokui: Well I don't think China can
save anybody's trouble; by the way I switch to English because I
want a better understanding a change with our esteem Ambassador.
Okay, I don't think any country can be saved by China in today's world our
country can only save itself by its own fundamental policy reforms however I have
to stress that these countries including the U.S should appreciate one very,
very important effect that is a significant proportion of your sovereign debt is being
held by sovereign investors like Chinese Currency Exchange Authority and we are,
the Chinese authority, we are the most patient perhaps probably the most
cooperative investors in the world.
Imagine if the 3.2 trillion U.S Dollar currency reserves is being controlled by
Mr. George -- what would happen? I'm sure we have been already under
selling the U.S economy, U.S treasury bonds.
Your financial market in much bigger chaos than it is so China is already
showing a very, very positive attitude
towards all these countries in trouble,
however our emphasis fundamental reforms should be implemented and in the process
all parties would cooperate to negotiate without further and deeper understanding
of each other's interests from a Chinese point of view the last thing we want
is protectionist policy from the U.S and Europe.
That in the tire issue, the tire, the passenger car tire issue which is a --
example these protectionist policy didn't help China, it didn't help the U.S at all
because your total volume of import from all over the world actually increased
after the special policy rather than increase. So I think China is ready to help
meanwhile we also need better understanding from the U.S of Europe of
Chinese needs.
Rui Chenggang: Ambassador Locke, we can take that questions a bit further, much of
what Mr. Li was arguing is that the U.S politics always trump economics and now it
is even more so than previously,
the political paralysis in Washington is making invested around the world nervous
about the governments ability to make ends meet.
And this morning I checked President Obama's disapproval ratings just went up
again so what gives you confidence that the politicians in Washington will do the
right thing. Gary Faye Locke: Well first of all let me
say with respect to the U.S Treasuries China only holds about 7 or 8% of those
treasuries and that almost 70% of those treasury T-bills are actually owned by
Americans and so it is in the economic self interest of Americans to make sure
that our economy is strong and other countries that hold those T-bills.
Again China only holds less than about the 7 or 8% of those T-bills.
I have confidence that the American political system will work.
It is sometimes a little bit messy,
but the reality is that we did reach an agreement. We did raise the debt ceiling and in
doing so there was an agreement to lower our deficit and there are immediate cuts
across the board that are being instituted by the U.S government and further cuts to
insure our fiscal stability in our fiscal health but even additional $1.5 or $1.4
billion in cuts.
And if the members of Congress cannot reach an agreement those cuts of $1.4,
$1.5 trillion will take effect automatically so it is actually in the
self interest of the political leaders to make sure that these cuts are strategic
and are as wise as possible as opposed to across the board cuts, but again it shows
the commitment or the willingness of the president and the Congress to make these
tough decisions.
Now let me just also say that we know that we need to move away from a debt
ridden society that there has to be more savings among American people and that
is why we also have to have a more less borrowing within the Federal Government as
an entity and that is why the president has really focused on innovation that
is part of our strategy that we have got to get away from these asset bubbles and so
much attention to financial services and that the wealth of the country is not by
buying and selling and trading but on making things on innovating and on
infrastructure as professor Li indicated.
And so states all across America are ramping up, gearing up, increasing their
investments on infrastructure because we know that we have to fix our roads and our
bridges sooner or later the longer we wait the more expensive it is and if you do it
now not only have you saved money but you put people to work and that creates jobs.
And all those people who design the roads, the construction workers themselves
they shop in malls eat in restaurants, by cars, remodel their homes so they support
many other workers throughout the economy.
The president is also successfully included in the budget and the Congress
has passed more funding for R&D,
more research at Federally government sponsored research as well as proposed tax credits
for businesses to implement and engage in more research and development, but that
is going to be the strength of our economy innovation and so we are trying to get
back to what Americans always done best.
Rui Chenggang: Now we would like to take some questions from the floor on the theme
how should China effectively keep its immense savings intact a minute a global
debt crisis. Questions or comments are invited.
Please identify yourself and try to keep it short.
Now the floor is open to questions.
The issue in front of us is how can China keep its highest savings initially global
debt crisis.
This is a question about the Chinese Foreign Currency Management and visions
about China's overseas imbursement. Now the floor is open for questions.
Please keep it brief. Unidentified Male: I think there is one
solution China's brands in particular quality brands to work together and move
out to the rest of the world for instance the U.S.
If we can expand Chinese brands in the U.S
that will help facilitate China's economy and create more jobs and tax revenue for
the U.S.
This can also use China's currencies and translate from made in China to created in
China just last week we found a club supported by Britain and Belgium so my
question is to Gary, does the U.S welcome quality brands in China to converge into
the U.S to create their own brands we think that is a win-win solution what is your view?
In particular, when Chinese companies are trying to go global they face challenges
of visa applications actually hindering many Chinese companies from accessing the
U.S market.
We would have to go to the U.S to the distributors.
The distributors were not generated brand -- so could you give us a detailed answer,
a clear answer as to what is the attitude of the U.S for quality brands into the U.S
so we have heard that is what you are interested in and don't have any problems
for visa, we don't have any problems for our individual visas but we are not the one that
is going to setting up branch offices in the U.S we will just send our people but our
people are finding difficulties in how the
business approved in particular work visa so we do for a clear answer from the Ambassador.
Gary Faye Locke: I would like to answer both of those questions.
We very much welcome Chinese brands
and we already have numerous Chinese brands better gaining in popularity and becoming
more well known among the American people, Lenovo, your tablet PC as well as Haier
appliance maker.
Look at just the great popularity of
Chinese products in American daily life already a lot of the refrigerators that
Americans use under American brands are actually made in China along with
microwave ovens and so many electronic goods and so I think that as the
industries develop in China you are going to see them perhaps using their own names
instead of using other names. Look at the Korean names on television
sets and things like that how popular they are in the United States.
I think the key sometimes to success market strategy is coming up with the
right name that Americans can will support or resignate with you can use, come up
with a bad name whether it is a European automobile and will never be popular so I
think Chinese companies have to spend a little bit of time and energy on marketing
strategy and coming up with the right name of a product with respect to VISA
applications we have long recognized that we in the United States government in our
embassies not just in China but in other countries around the world are too slow in
processing Visas in making it too difficult for both tourist students
and the business travelers to come to United States because that is a major
undertaking, a major area of focus for me as Ambassador here in China, but also for
President Obama and the State Department so we are aware that our Visa policies are
discouraging both business travel as well tourist to come to the United States
and we intend to fix that. Thank you.
Rui Chenggang: Good to know and the gentleman in the second row and the
gentleman in the second row first.
Gervase Warner: Hello, good morning. My name is Gervase Warner.
I'm from Trinidad and Tobago I'm the President and CEO of Neal & Massy Group of
Companies. I think you for allowing us to be here
this morning.
My question actually is two-fold maybe one part for Mr. Li and one part for Mr.
We in the Caribbean have seen a number of investments by Chinese companies or the
Chinese government in terms of helping with infrastructure projects or even in
entering into some of our stream expiration industries but a number of
occasions these investments come largely direct in terms of funds or Chinese
workers or Chinese companies coming in and very little done in terms of developing
local content, transferring technology or skill sets, which I know are very
important policies when multinationals come to China.
And so my question to you Mr. Li is where is China going, where are Chinese
companies going these are the when they go out expatriating in terms of recognizing
their role in helping smaller development countries develop and grow as China and in
India Mr. Gopalakrishnan there are a number of Indian companies that have been
quite successful in like many outsourcing work like your own and I think again their
opportunities in other developing countries or leading giants like
yourselves from India to similarly come into developing countries and do create
similar enterprises and local content and development of education etcetera as you
have done in India and I would love if both of you gentleman could speak a little
bit more about Chinese and Indian leadership in sort of replicating the kind
of growth and development with both of your companies and countries have come to enjoy?
Thank you.
Li Daokui: Well I think the keyword is spillover, spillover in English right that
is if you look at Chinese early experience of attracting foreign direct investment in
early days China did not have all those technologies coming.
China didn't even have all the so called benefits come to China.
However China kept on opening doors eventually the spillover effect took over
and that is with more and more pour investors into China more Chinese workers
that are hired, more technicians being trained and the more local enterprises
being established so that process I believe is happening in your country
and other areas that is with gradual and continued pulling of Chinese investments,
the local economy well benefits and eventually will benefit, let's be patient.
Thank you.
Kris Gopalakrishnan: So you know replicating the IT services model, this
is something which the IT services industry in India has been doing for many years for
example you know we have now set up operations in Philippines.
In China we have very large operations in Eastern Europe, in Mexico, in Brazil.
We are actually transferring our knowledge through the engineering colleges around
the world by collaborating with them on curriculum development training the
teachers and we are doing this with support from the governments around the
world actually. In fact, you know multiple governments
have spent batches of hundred of students to actively come to India.
They are not our employees but they just come, get trained and all we request
is from the governments and they will come to India an then they will get trained
and then they will go back so the Indian IT industry has been doing there is a sector
within IT industry which is education and training and that sector has been
establishing training operation actually around the world so Indian IT services
industry for its need of creating talent around the world is creating operations
around the world is also sharing expertise in training etcetera to other countries.
Rui Chenggang: Last question from theג€” Unidentified Male: I'm from the China
Entrepreneurs Magazine the Premier Wen Jiabao in his kind of speech has made
a proposal to President Obama of United States to rebalance the Chinese and U.S
economic interactions and to solve the debt issue.
We should take debt to equity approach and I think the debt to equity solution
has been quite successful in China's SOE reform and restructuring.
So my question is for Ambassador Locke,
what do you think of the debt to equity proposal made by Premier Wen Jiabao?
The second question is for, Dr. Li, if this is to happen, will it bring about
some problems that all the equity will be taken by state on companies in China
and Mr. Wang if private companies had a chance would you participate in it or not?
Gary Faye Locke: Well let me just me say that we would for instance welcome Mr.
Wang's investing in United States
and moving away from ownership of T-bills to actually investment of assets in the
United States and helping create jobs in the United States.
Mr. Wang has a very successful history of entrepreneur as an entrepreneur
and developing commercial real estate and many other facilities, we welcome that in
America and again United States is one of the most open economies in the world for
foreign direct investment.
We have if you look at the restrictions of American investment or European investment
in China there is a huge dichotomy and a huge contrast so we very much welcome that
and another thing that Premier Wen Jiabao was talking about was export controls.
We are in the process of reforming our entire U.S export control system to take
things out of the categories that are almost prohibited now from exports to or
making it very difficult to export to China and other countries.
It is actually moving to the department that I used to head up the commerce
department and that will enable many of these items as long as they are not being
used for military purposes to be exported
and many things won't even require a license at all so we understand the
changes that have to take place.
And that we understand that China has enormous needs and that the Chinese people
also highly valued and have a great demand for made in U.S.A goods and services
and we want to facilitate that trade as a way of addressing our trade deficits and the
imbalance of trade, but again we believe that the more foreign direct investment
into the United States will be helpful it is welcome and second of all we also want
to sell more items that are currently restricted to China to help address that situation.
Li Daokui: Well I think for the debt equity proposal we should understand it in
a broader way not just takes place at the narrow corporate sense.
The United States government does not hold assets otherwise it would not have
needed to raise debt ceilings.
The only assets are the White House or the Pentagon.
You are never going to sell Pentagon or the White House to the Chinese government
so for the incremental part of the Foreign Exchange Reserve Holding it should be
invested into the physical sector of the U.S economy such as the private sector of
the U.S economy. The U.S economy is the binary one.
There are many excellent performers like Boeing and Intel and Apple which are
closely related in China maybe we should make equity investments in these types of
companies in a more proactive way. And I think when the global outlook or the
confidence in the Treasury Bond of United States is stabilized we can liquidate some
of our holdings after stabilization is achieved. Now the liquidated cash can be turned
into kind of private sector investments into apple, into Boeing buy more shares
from those companies for those companies to expand production.
I don't think SOE from China will play a main part in this process and I think
private companies will take lying share off of such activities.
Rui Chenggang: Yes, Mr. Wang has conveyed it quite well.
His colleagues and he himself would like to buy more assets overseas.
Wang Jianlin: If for the debt to equity
kind of a proposal I fully agree with Dr. Li's understanding the U.S economy is
a private economy, not a state owned economy
so the debt to equity proposal is a very good one but it is not so practicable
and for the equity that is an offer maybe you don't want it but for the equity you want
to have. It is not available for sale.
For example, if you want to take equity positions in Apple, is it possible or not,
no and also I talked to the top 7 or 8 hotel groups in the United States.
They had refused any equity taking from my group so I think it is a corporateג€”
inter-corporate interactions with compromise this and if anything is deemed
fit though that equity operation will occur but it depends on the market.
Rui Chenggang: Now lets move on to the next topic which is closely related to Mr.
Wang's sector given the increase in every expectations what about the future growth
prospects of the property sector in China.
Since 1998 of the housing reforming China a large part of the Chinese growth has
come from real estate, real estate and related factors and investment consumption
and export are closely related with land, with the properties as well.
If we take a look at the physical revenue of some eastern provinces the land so
proceeds used to account for 40% of our government fiscal revenue but that era
is going forever is no longer the case to rely on the landfill proceeds.
With that error gone what impact will it have in an equity way on Chinese growth
prospects in the future?
Wang Jianlin: I don't think the land dominated fiscal structure is gone.
Why do I say so? For the local government fiscal revenue
the, I still highly dependent on landfill proceeds with the part dependence from
1998 to the early 21st Century there was nationwide to massive transfer of land
rights because the budgetary fiscal revenue cannot support the rapid growth
that China has enjoyed for the many years so the landfill proceeds have played
a pivotal role in China's growth and I just returned from Russia yesterday and I paid
a visit to the U.S in May.
I witnessed the aging of much of the infrastructure because everything depends
on fiscal investments like roads and bridges that Russia and the U.S alike.
So they do not have a toll roads they do not have land transfer proceeds so for the
land dominated fiscal structure it has its negative side but however over the past
two decades relying on such proceeds we have secured hiper growth of China so for every
coin it has to sides.
So for the minus side many local economies do not feature a strong IT
and high tech component and the bulk of the economy focuses on the land on the
property sector that is a minus side and I think as I have said there are two sides
of the coin. There is problematic side as well, but it
is not an overnight effort that we can remove all the dependency on land sale
transfers because these problems have accumulated for the past 2 decades it
takes time to be faced out maybe 15 or 20 years.
Rui Chenggang: But is there so much land remaining to be available?
Wang Jianlin: The best parts of the land have already been transferred but I think
it is a miscomprehension,
why? We do not have to take arable land for commercial development for example in
Dalian by filling some of the sea we can reclaim land from the sea and we can see
a more intensive part kind of patent of land usage by increasing the plot ratio of the
property developments.
Well we should face out the over reliance on land in our local fiscal revenue but at
present everybody is blaming the property sector. The property sector is becoming a culprit
in the eyes of everybody. However the property sector
is contributing 2 to 3% of China's growth every year, China's growth rate.
So no other sector can take its place so at all levels of the government central
and local we should find replacement sector to replace the contribution of the
property sector as soon as possible but it takes time.
If there is hand landing there is a prohibition on all land sales then the
government will not be able to pay salaries
Rui Chenggang: And what about the property austerity measures.
Is it nearing an end? Wang Jianlin: No, it is going to for the
long haul for the social restriction policies and other austerity measures they
are here to stay and the governments are using time to buy a space with 3 to 5
yearsג€”cost housing will account for roughly 50% of all the housing supply
and at that time they will be exits of the austerities. Li Daokui: I fully agree.
For the property sector development it is an epitome of the growth mode of China.
China used to rely on the land based fiscal revenue.
It came in to us very soon just by you know selling a piece of land.
It was quick and effective however it
resulted in a lot of credit-debit kind of problems between different governments or
different terms of government and at present the other approaches that for the
government to haul some land to pursue industry, service or low cost housing
developments and then there will be a future stream of tax revenue that is very
important transition but also that is a painful process.
For example, last year we grew by 10.4% and we need to slow down to 9.5% this year.
This 1% slow down is going to be painful but we have to smooth this difficulty.
We have to surmount this obstacle otherwise the situation in China will be
even more dire than the United States pre-2007, 2008 for the property sector in
China the poor people cannot buy any housing so it will aggravate our social
confrontation for the subprime mortgage crisis in the United States.
It has this positive side for our housing crisis it has no positive side and I think
the determination has been made in the next 2 to 3 years there will be further
like a soft landing or slow down of the property sector.
We should fully embrace for the Chinese economy to grow on a more sustainable
and healthy footing and I think 2% price drop every year is the price we must pay,
but it should take place over a long period of time it should not be rushed.
Rui Chenggang: And also for European and American economies it is very slow going
because those governments do not have any land to sell so then given that background
my question for Ambassador Locke of real estate telling us about how China should
manage its own real estate market?
Gary Faye Locke: Well I don't think that we in United States have been really
making any comments about the real estate market you know we are trying to get our
own real estate markets back in shape with housing prices and real estate
construction are very, very depressed right now, but obviously as professor lee
indicated there have to be some structure changes in the Chinese economy there have
to be structural changes in the U.S economy.
None of these things are going to be able to take place overnight.
We know that for instance and the Chinese leaders have indicated and that China
needs to move away from being so dependent on exports and focusing more on domestic
consumption and meeting the needs of the Chinese people.
China has an enormous social safety network problem as more and more Chinese
citizens are elderly, how do we support, how does China as a society take care of
the social medical needs of that aging population. We face the same problems of United States
and we are trying to make some changes with respect to our social safety network.
Several years ago President Clinton embarked on very significant welfare
reform in the United States an we made those tough decisions and it has actually
worked out very, very well by in large, but we still have a long way as to go in
terms of making sure that is social security and Medicare and Medicaid are
sound, but I think we are up to that challenge. We in United States as an economy have to
focus more on exports.
We need to focus again on innovation as President Obama has indicated.
We need to move away from being so consumed on debt whether personal
household debt or debt by the government and we are making those changes.
Thank you. Rui Chenggang: Kris?
Kris Gopalakrishnan: See as an economy develops, as more people move to middle
income group one of the first things there to look at is you know a house, buying
a flat etcetera and so the demand increases
and the supplies of course limited always because you can create of course you can
go into sea and reclaim land but primary land is limited and price will actually go up.
Now it has to be manage properly because you will create a level which everybody
knows now today and we will create a bubble and that is what we need to protect
to yourself because you know this is happening even in India actually and India
also land prices of become exorbitant and affordable to a segment of population
and that we had social tensions and unhappiness.
When you also look you know the mortgage
phenomenon etecetera that way you have to control this and manage this trouble
otherwise you know when the demand slows down when there is a downturn in the
economy and downturns can happen and all we have seen volatilities there it will
create a bubble and that is something we have to all be very careful about
and manage properly and you know the simple solution is not there and if the simple
solution was there that means -- so you know that is one of the things we have to
figure out how this can be solved.
Rui Chenggang: So my question is to Mr. Wang speaking of you most of the media in
China remind of commercial economy because a commercial real estate market because
you are always the leader in the commercial sector of the property market.
Our next topic is about innovation.
Some people are discussing about the shopping habits of the young people the
first in 1980 generation most of them are doing online shopping so once you have
your IPO you will become the biggest to private company in China by market customization.
However the concept of commercial property perhaps is not an attractive idea
to the young people. Young people tend to buy things online
because the shopping malls take a look and they go to --.com.
-- is talking about one in RMB with those revenue next year so I was wondering where
your shopping malls can reach the large sales revenue as well?
Wang Jianlin: That is perhaps another misconception then -- to the U.S online
shopping a few years ago some people were making judgments about the decline of the
retail industry in the U.S but the retail industry in the U.S did not die.
The online shopping was increasing but the overall return - on the increase as well.
The percentage of the online industry was not increasing as much even if online
industry, online shopping has been increasing by around 10% every year but
the retail industry has also an increasing
by 15% to every year so I'm not thinking that is the non-conventional shopping will
replace the convention of shopping.
Second -- advocates experience base to shopping within - we sit up our goal to
reduce our retail percentage to below 50%
in other words the shopping concept is much winder than buying things if you are
going to shopping mall and then you can consume by going to karaoke or watching
movies that is another way of shopping. So this is not online shopping in the
internet verbal stage people were thinking
that exhibition was going to die but that is not happening.
Rui Chenggang: So the model that you are talking about is perhaps about a new
growth point in your industry.
Now the floor is open to questions.
We are opening up our floor to comments and questions please identify yourself first.
Discussion to the floor once again please identify yourself and share with us
briefly your comments or questions on the second topic.
I'm sure after this discussion you are fully aware of the importance of a real
estate market to China.
Unidentified Male: I'm from - company. I'm a member of IBC so on behalf of the
new generation of innovators and entrepreneurs our customers in the new -
for growth a developing country in particular in China tend to be constrained
by intellectual property issues who have to leave this question to our next stage.
The current topic is about property market.
Rui Chenggang: The gentleman over there if your question is about the property
market could you please pass on the market microphone.
Unidentified Male: I'm from Shanghai electronic company I am also a member of
Our company is largely involved in industrial automation so my question
is inג€” in your property market in China it seems that the property market is already
the engine behind many other industries such house declaration and other
supportive industries with the slow down in property market many other industries
will be affected such as our industry.
Do we have any solutions in order find an alternative way of developing the property
market when reducing our dependency on the property sector?
Rui Chenggang: Professor Li.
Li Daokui: A very good question.
Many people oppose the micro control or the policy change in property market
precisely due to the reason you have talked about.
Mr. Wang was talking about the alternative way for the reduction of the
2% which decrease. I think that given this strategic
importance of the property sector we have to pay this price until we have this
replacement that is infrastructure development.
In China, every year with this different kinds of natural disasters,
drought, earthquakes etcetera, what does this tell.
This shows that we are lacking behind in terms of facility development public
facilities indeed.
I think heג€” 30 years meeting to hugely that sector that perhaps can make up for
the deficiencies and thus the property market has suffered.
Rui Chenggang: Innovation for that and best - has previously mentioned
and personally I fully agree with him that so long as the United States keeps his border
open to immigrants and all the visa applicants America will always have the
source of innovation and great ideas and great products and great companies.
However, when it comes to China innovation has always been initial if you
take a look at many of the Chinese companies many of the products are
probably more or less copycats of good products overseas.
Even in the IT sector if you take a look at China's leading internet products most
of them are Chinese counterparts of Google
of Amazon of yahoo etcetera, etcetera. So I think we would all agree that
innovation is to be encouraged, protected and properly rewarded.
What might be China's new approach to encourage innovation so that one day we
can have a Chinese apple a great new company as well.
I would like to begin by asking Ambassador Locke to see if you have any
ideas to share?
Gary Faye Locke: Well you know I was reading with a group of Chinese
entrepreneurs the other day and we were talking about and actually Chinese
economist too about the differences in terms of what has made America great
and what has made China great and one of the differences that this economies noted
is that United States is a society that is open known for equality and one of
opportunity and freedom and what makes that possible is predictability and a rule
of law.
This person was commenting and others were commenting how you know the son or
daughter of a high ranking government official can be taken to court and that if
they violated the law that if a Chinese company was unfairly treated that,
that Chinese company can sue the American ports and get justice.
What makes America great is that predictability and that rule of law which
underlines and serves as the foundation for freedom, equality,
opportunity. So that people immigrants from around the world can come to the United States
knowing that if they work hard that if they get a good education and even with
just a few dollars in their pocket they can succeed and that they can take on the
giants of America and indeed around the world.
Clearly if Chinese companies want to innovate, they are going to want to have
protections for their own intellectual property and that is going to require
a rule of law.
That means enforcement strong enforcement of intellectual property rights because if
countries don't have strong intellectual property rights and a strong predictable
reliable fair illegal system one of two things will happen even either that
innovation will stop occurring within that particular country or the innovators the
young people and talent and the researchers and the scientists
and entrepreneurs of that particular country will go some place else to engage in their
innovation and that is going to take away job opportunities for that particular country.
So it is in China and other countries economic self interest to have a strong
sense of rule of law predictable laws that are consistent, that are transparent
and that are enforced and so I think clearly you have great talent here in China,
great talent here in China with all the PhD's and engineers and scientist that you are producing.
Where will they innovate and will they benefit the Chinese society.
Rui Chenggang: Kris, some say the Asian culture does not particularly encourage
innovation or education tradition as well.
How did India manage to deal with that and produce good companies like Infosys?
Kris Gopalakrishnan: So I don't agree with this proposition that Asian culture
does not look at innovation. I think the right environment that most -
created innovation can perish anywhere in the world.
Now there is predictability and rule of law, meritocracy you know support from the
government opportunities are there,
education, a good education system I think innovation can perish anywhere.
There is a role for the government. The role for the government is to create
the rules of the game to make sure that the rules are implemented properly
and appropriately and as quickly as possible because delays are also a factor here.
The there is a role for the private sector
to make the investments and who create the entrepreneurs to create the businesses
that will products and services to market and these are the principles in which you
know you will see innovation happening
and that is what I think happening today you know if you look at what has happened over
the last 30 years many of these things are being implemented in many countries in
Asia and you know markets are being opened up. Today you know more markets are open we
are interconnected world and that is the reason why global GDP growth has happened.
So it is happening and that I hope is a continues process in this downturn that
is happening is not going to reverse that and if there is not reverse and then I am very
positive to say that you know the innovations will continue to happen
and will happen in Asia also. We are saying that in India, when India
opened up its economy in 1991 linked its market to the global markets.
There was initially concern whether Indian companies will be able to compete,
but Indian companies have competed and done well in some of the sectors.
IT sector is one of those sectors that you know we can talk about and that
is what I think will happen when you confidently make the right changes.
Rui Chenggang: Thank you.
Back to Professor Li.
In respect of China's innovation,
China does not lack market and talents or capital but China is different from India.
India's development is perhaps a bottom up approach but China perhaps is more
a top down approach, some people were joking that India's economic growth and India's
innovation is India's absence of government but China is because the
existence of Chinese governments.
Do you think that companies need to take more initiatives on each more guidance
from the government?
Li Daokui: I think that before responding to your question and let me just comment
on Ambassador Locke's remarks.
He is an excellent Ambassador transmitting the America values,
American message to China. In other words to have innovation you need
to have a rule of law and IPI protection but I don't agree with him.
China's past to 30 years of development is not necessarily a past of development.
China is lacking behind many other countries in this large space.
We do not need a perfect system. We only need improvements or reforms in
or two areas. We have lots of people in R&D,
in technology innovation. Once the system is in place these people
will call for IPI protection will go to court for the reward of justice.
If China follows the U.S model then China will not be able to succeed.
So I don't think that a single model succeeds, what about China's developments,
what about China's model of innovation.
I think we need to look at two things first the business model everything that
is related to service already features innovation in China for instance internet.
Microblog, search engines, -- , social networking.
If you look at indicators China's
development in this area has far exceeded the U.S and even India.
Higher and higher community service
another thing is invisible.
We are lacking behind to either manufacture sector in the technology
sector well we have the technologies coming from other countries but I think
that those areas that we are not clear off are the areas that we need more innovation
in the industrial sectors we need to introduce innovation to reduce our price
gap with our foreign competitors.
I think that we are moving ahead in these two areas.
What we need to do is to bring together
capital and technology in a financial sector to allow more space to the young
generation people like me who should not be involved in more innovation which leave
the space to people born after the 1970's and 80's.
Gary Faye Locke: Sure it has different political and legal systems and no one
is saying that China has to copy the United States model nor should they copy the
French or the German or the UK model, but clearly there has to be predictability,
there has to be transparency in how the laws are made.
I mean you cannot go around having a country where something that is perfectly
legal for many, many years just suddenly made illegal and people who are doing that
activity a year before suddenly thrown in jail or fined.
That discourages innovation that puts a damper on entrepreneurship.
So there are basic universal legal principles that every society should have
and certainly China has been for centuries
governed by laws and rules of conduct
and clearly now that innovation is such an important part of every countries economy
there has to be a foundation that encourages that innovation and certainly
if China does not strongly enforce intellectual property rights I'm not
saying that innovation will not occur in China but certainly the whole potential of
the Chinese citizens will not be realized
and certainly if you want the new entrepreneurs to great young people who
have great ideas.
If you are going to put in their hard earned money and their sweat and labor
into pursuing these innovations they will want to be rewarded.
That is by Chinese people who are working so hard because they want prosperity
and that is perhaps part of the genes or the genetic make up of the Chinese.
They are entrepreneurs, they are hard working, they want success, they want to
provide a better future for their own families in future generations but if they
cannot have their hard earned work labor protected and properly rewarded then that
discourages innovation. Rui Chenggang: Or they might go invest
a few million dollars in United States and go get American passports.
Gary Faye Locke: Or they yes, or they might move their operations to Korea,
or to India or later to Africa and other developing parts of the world.
So it is in China's own economic self interest to continue its progress.
They are making progress on rule of law
but if you really want to maximize the aspirations of the Chinese people we need
even more concerted effort on predictability, on sustained efforts on
promoting intellectual property rights protection and developing consistency
and transparency in the legal systems that you know just how it affects businesses just
how it affects businesses when laws are passed and whether they apply 6 months
from now or whether they apply and going backwards a year or so I think people want
that predictability that certainty. Rui Chenggang: Mr. Wong have you listened
to the comments made by Professor Li and Ambassador Gary considering the facts that
many Chinese entrepreneurs were having their own success are choosing American,
Canadian or Singaporean passports,
-- passports because think of always - can speak Chinese and have Chinese food what
does this tell?
Wang Jianlin: So my question is about the selection of passports, what does this tell?
Perhaps, two reasons, one is China's tradition in turn has a 5,000 years of -
society so there - people is much bigger
is much important kind of rule of law this has become a culture gene.
People in China especially in private business line tend to have a sense of
insecurity American passports or Green card will give them a greater sense of security.
There is another reason.
We have some problems in our system in the initial stage of our reform
and opening up the private sector is developed or was developing in not so regulated way.
If you look at growth in China we have a way which is selective law enforcement.
When the law is coming out it seems that everybody will be violating the law so
there is a selective way of law enforcement.
So many business leaders are quite afraid of such selective enforcement.
They want to go out to avoid it and many of those SME leaders have left China for
other countries but for those leaders of larger companies they are still in China.
Rui Chenggang: And what about innovations in China?
Wang Jianlin: Everybody is talking about innovation in China, but very few what succeeds.
Rui Chenggang: Very cautious note that we will have to conclude this very
interesting session on the new frontiers of China's growth.
I would like to thank you for all of your participation and if you have questions or
comments please talk to any of those CCTV cameras roaming around the conference
and tell them you have a point to contribute to the session.
Finally, a warm round applause for the panelists, thank you all very much.
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Dalian 2011 - Next Frontiers of Growth in China

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Jay Lu published on May 19, 2017
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